In Re : M\/s. Inox Air Products Pvt. Ltd.
GST
2018 (6) TMI 518 – AUTHORITY FOR ADVANCE RULINGS, GUJARAT – 2018 (14) G. S. T. L. 147 (A. A. R. – GST), [2018] 2 GSTL (AAR) 96 (AAR), [2019] 67 G S.T.R. 362 (AAR)
AUTHORITY FOR ADVANCE RULINGS, GUJARAT – AAR
Dated:- 21-3-2018
Advance Ruling No. GUJ\/GAAR\/R\/2018\/7 (In Application No. Advance Ruling\/SGST&CGST\/2017-18\/AR\/16)
GST
Mr. R.B. Mankodi, Member And Mr. G.C. Jain, Member
\nFor The Applicant : Shri Rohit Jain, Advocate
\nRULING
\nThe applicant M\/s. INOX Air Products Private Limited (herein after also referred to as 'INOXAP') is engaged in the business of manufacture and supply of industrial gases, including Oxygen, Nitrogen, Argon etc. M\/s. Essar Steel India Limited (herein after referred to as “M\/s. Essar”) is in the business of manufacture and supply of steel and has one of its steel plants at Hazira, Gujarat. M\/s. Essar requires certain quantities of Oxygen, Nitrogen and Argon on a continuous and dedicated ba<\/p>\n
= = = = = = = =<\/p>\n
Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ises of the Steel Plant. The applicant has obtained a separate GST registration for this premises. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n of manufacturing plus a ten per cent mark-up. In light of Rule 10A read with Rule 8 of the Valuation Rules, the applicant discharged the Central Excise Duty on an assessable value comprising of the following: = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n to them by M\/s. Essar and the said activity of separation of air to obtain gases is done on behalf of M\/s. Essar only. Therefore, the transaction in the present case clearly classifies as a job work transaction. They submitted that as clarified by the Circular D.O.F. No. 334\/4\/2006-TRU dated 28.02.2006 issued by the Ministry of Finance, which has reiterated the settled law (UOI Vs. Playworld Electronics Private Ltd. – AIR 1990 SC 2002), that in order to determine the taxability of a transaction, it is essential to determine its true commercial nature. It is submitted that the perusal of various clauses of the Agreement between the applicant and M\/s. Essar, the following emerge as key features of the contractual and commercial arrangement between the parties : = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n y. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n d to the definitions of 'goods' given under some of the erstwhile Sales Tax and VAT legislations. It is submitted that in the context of the definition of 'goods' under the Sales Tax and VAT legislations, the Hon'ble Supreme Court has examined and ruled on the issue of whether electricity constitutes 'goods'. They referred to the decision of Hon'ble Supreme Court in the case of Commissioner of Sales Tax, M.P., Indore Vs. M.P. Electricity Board, Jabalpur [1970 (25) STC 188] and State of Andhra Pradesh Vs. National Thermal Power Corporation Ltd. and Ors. [(2002) 3 SCR 278] and submitted that electricity is in the nature of moveable property which is capable of abstraction, transmission, consumption and use, consequently electricity would fall within the ambit of the term 'goods' as defined under the CGST Act, 2017. They referred to the meaning of the term 'movable property' given in Black's Law Dictionary and submitted that 'Air' used as an input by the applicant clearly falls within the<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ownership of the air viz. (i) statutory position; and (ii) position under the commercial arrangement. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e valuation, it is submitted that the valuation of the present transaction would be transaction value as determined in accordance with Section 15(1) of the CGST Act, 2017 i.e. the price actually paid or payable when the following two conditions are satisfied : = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ose goods into industrial gases. The activity of processing applied to another person's goods is a supply of service by virtue of Section 7(1)(d) read with Entry 3 of Schedule II of the CGST Act, 2017 which provides that 'any treatment or process which is applied to another person's goods is a supply of services'. Accordingly, the process undertaken by the applicant in the present case on the goods belonging to M\/s. Essar would be considered as a 'Supply of Service' and GST on the said transaction would be payable only on the processing charges collected by the applicant from M\/s. Essar. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ct as the applicant has mentioned it as their additional place of business and GST Registration's copy has been submitted. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n egistered person. It is evident that the applicant is involved in an activity which is not job work but manufacture and supply of a completely new item i.e. industrial gases which are goods in terms of section 2(52) of the CGST Act, 2017. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n der Section 2(68) of the said Acts as follows :- = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n and use which, if done dishonestly, would attract punishment under s. 39 of the Indian Electricity Act, 1910. It can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other movable property. Even in Banjamin on Sale, 8th Edn., reference has been made at page 171 to County of Durham Electrical, etc., Co. v Inland Revenue(1) in which electric energy was assumed to be “goods”. If there can be sale and purchase of electric energy like any other movable object we see no difficulty in holding that electric energy was intended to be covered by the definition of “goods” in the two Acts.” = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n of 'input'. As such the generation of electricity or steam as intermediate products would fall within the scope of these expressions, and would amount to job work” = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ng Activity and to generate the Guaranteed Quantity (which obligations are contingent upon supply of the Inputs) under this Agreement. For the avoidance of doubt, the Parties agree that ESSAR shall at all times during the Term continue to provide the auxiliary power (free of charge) in accordance with Clause 12.1.3 of Schedule 1 at the INOXAP Facility.” = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n wnership of the air vertically above it. Accordingly, the air (above the land which is owned by ESSAR), clearly belongs to ESSAR. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ided that ……….. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them; = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" In Re : M\/s. Inox Air Products Pvt. Ltd.GST2018 (6) TMI 518 – AUTHORITY FOR ADVANCE RULINGS, GUJARAT – 2018 (14) G. S. T. L. 147 (A. A. R. – GST), [2018] 2 GSTL (AAR) 96 (AAR), [2019] 67 G S.T.R. 362 (AAR)AUTHORITY FOR ADVANCE RULINGS, GUJARAT – AARDated:- 21-3-2018Advance Ruling No. GUJ\/GAAR\/R\/2018\/7 (In Application … Continue reading “In Re : M\/s. Inox Air Products Pvt. Ltd.”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-12138","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/12138","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12138"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/12138\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12138"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12138"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12138"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
For full text:-Visit the Source <\/a><\/p>\n
\n2.3 The mechanics of the transaction and consideration payable by M\/s. Essar to the applicant for the manufacture and supply of gases is as follows :-
\n a. The applicant will raise a daily invoice for the fixed and variable job work charges for each product, based on the quantum cleared on that day;
\n b. At the end of each month, the applicant will raise a supplementary invoice for 'additional consideration' for the gases supplied in that month, equivalent to the difference between the monthly fixed and variable job work charges (as agreed by the parties) less the fixed and variable job work charges billed on a daily basis. A separate supplementary invoice will be raised for gas supply and for supply of vaporised liquid gas.
\n c. At the end of each month, a supplementary invoice will also be raised on account of WPI \/ CPI escalation on the variable job work charges, based on the WPI \/ CP<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n (a) Job Work Charges payable by Essar to applicant;
\n (b) The value of electricity and industrial water provided by Essar;
\n (c) Notional rent for the designated land;
\n (d) Escalation on account of WPI \/ CPI
\nPlus a ten per cent mark-up on the aforesaid.
\n2.5 In view of the above, the applicant raised following issues for determination before this authority :-
\n (i) Whether the activity undertaken by the applicant amounts to “Job Work” as defined under Section 2(68) of the Central Goods and Services Tax Act, 2017 (herein after referred to as the 'CGST Act, 2017') ?
\n (ii) What is the value on which the applicant is liable to pay GST ?
\n3. The applicant has referred to various provisions of CGST Act, 2017 with respect to job work, supply and valuation. The applicant has also re<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n (a) Essar is to provide designated land and all other inputs including electricity, industrial water etc. uninterruptedly, on free-of-cost basis to INOXAP, and the ownership of the land and inputs will remain with Essar at all <\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n4.2 It is submitted that from the provisions of the CGST Act, 2017, there are three essential requirements to be fulfilled by the applicant in the present case to term the present transaction as job work, namely :
\n (a) The activity undertaken by the company should qualify as a 'treatment or process',
\n (b) The treatment or process undertaken should be on goods i.e. the raw materials\/ inputs involved in the present cases should fall within the ambit of term 'goods,
\n (c) The goods should belong to 'Essar'.
\n4.3 The applicant submitted that as the terms 'treatment' or 'process' have not been defined under the GST laws, reliance is placed on various dictionary meanings and judicial precedents in this regard. They referred to decisions in the case of CST Vs. Samodar Padmanath Rao [1968 (22) STC 187 (Bom)] and Haldia Petrochemicals Ltd. Vs. Commissioner of Central Excise, Haldia [2006 (197) E.L.T. 97 (Tri.-Del.)]. They also referred to S.B. Sarkar's Word & Phrases of Excise, Customs & <\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\nThey submitted that it is a settled position in law that the owner of land is also the owner of the vertical column of air above the land. This position derives from the Latin maxim cuius est solum, eius est usque ad coelum et ad inferos, and has been legislatively recognized under the Indian Easements Act, 1882 at Section 7 thereof. It is submitted that the said provision clearly states that the ownership of land includes ownership of the air vertically above the land and this principle has also been judicially accepted in a plethora of decisions. In light of the settled principle of law, the ownership of land extends to the ownership of the air vertically above it, accordingly, the air (above the land which is owned by Essar), clearly belongs to M\/s. Essar.
\nIt is further submitted that in terms of the arrangement between the parties, M\/s. Essar is required to provide land and all <\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n – The supplier and the recipient of the supply should not be related, and
\n – Price should be the sole consideration for the supply
\nThey referred to the decisions in the cases of Commissioner of Central Excise Rajkot Vs. Jai Bharat Steel Industries [2005 (192) ELT 792 (Tri.-Mumbai)], maintained in Supreme Court [2016 (340) ELT A138 (SC)] and Eicher Tractors Ltd. Vs. Commissioner of Customs, Mumbai [2000 (122) ELT 321 (SC)] and submitted that when transaction value can be determined in accordance with the provisions contained under Rule 4(1) of Customs Valuation Rules, 1988 \/ Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, there is no question of determining value under subsequent rules. They submitted<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n7.1 The applicant filed further submission vide letter dated 16.11.2017, wherein they referred to clause 4.3.1 and 6.1.4 of the agreement between M\/s. Essar and the applicant and submitted that the land is an essential requirement under the agreement for the company to undertake the manufacturing activity and the same is being provided by M\/s. Essar to the applicant. They cited various judgments in su<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n8.2 The definition of 'job work' under Section 2(68) under the CGST Act, 2017 has been referred and it is submitted that the job work means undertaking any treatment or process by a person on goods belonging to another registered taxable person; that the person who is treating or processing the goods belonging to other person is called 'job worker' and the person to whom the goods belong is called 'principal'.
\n8.3 With respect to the submissions made by the applicant at Para 4.1.2 of the submissions wherein it has been stated that the activity of manufacture of gases by Air Separation Unit (ASU) requires three primary ingredients viz., air, electricity and water for separation of the atmospheric air and that these raw materials and inputs are supplied to them by Essar and the said activity of separation of air to obtain gases is done on behalf of Essar only, it h<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n8.4 Further, as the process undertaken amounts to manufacture, the applicant was registered with the Central Excise department as a manufacturer and discharging Central Excise liability towards clearances to M\/s. Essar. Even the clause 2(c) of Schedule 2 of CGST Act, 2017, mandates that any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.
\n8.5 It is also opined that the applicant is supplying industrial liquid gases to a related party who has given them the input raw materials free of cost and land \/ place to install plant which are nothing but additional considerations. Therefore, value may be assessed in terms of prov<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly;
\n10.2 The applicant has submitted that the essential requirements to be fulfilled by them to term the present transaction as 'job work' includes that the treatment or process undertaken should be on goods, and that these goods should belong to Essar.
\n11.1 The definition of the term 'goods' has been given under Section 2(52) of the said Acts as follows :-
\n “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;
\n11.2 As submitted by the applicant, Atmospheric Air, Industrial Water and Electricity is required to manufacture industrial gases viz. Oxygen, Nitrogen a<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\nThe applicant has submitted that similar view has been adopted by the Hon'ble Supreme Court of India in the case of State of Andhra Pradesh Vs. National Thermal Power Corporation Ltd. and Ors. [(2002) 3 SCR 278].
\nThus, in view of the aforesaid decisions, we find that it is a settled position of law that Electricity is goods.
\n11.3 Therefore, Atmospheric Air, Industrial Wa<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n (c) S.B. Sarkar's Word & Phrases of Excise, Customs & Service Tax, 4th Edition : Process means “Prepared, handled, treated or produced by a special process”
\n (d) Websters Dictionary : “Processing means to subject to some special process or treatment; to subject (esp. raw material) to a process of manufacture, development or preparation.”
\n12.3 The applicant carries out activity of manufacturing industrial gases viz. Oxygen, Nitrogen and Argon by undertaking treatment or process on the goods viz. Atmospheric Air and Industrial Water.
\n13.1 As per the definition of 'Job Work' such treatment or process should have been carried out on the goods belonging to another registered person.
\n13.2 M\/s. Essar is a registered person under the said Acts. As per clause 4.1 of the agreement entered into between INOXAP and M\/s. Essar, <\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n13.3 As regards Atmospheric Air, which required for manufacturing industrial gases viz. Oxygen, Nitrogen and Argon, there is no reference in the agreement. In this regard, the applicant has submitted that the owner of the land is also the owner of the vertical column of air above the land, which position derives from the Latin maxim cuius est solum, eius est usque ad coelum et ad inferos (Translated : For whoever owns the soil, it is theirs up to Heaven and down to Hell) and has been legislatively recognized under the Indian Easements Act, 1882, at Section 7 thereof, as follow :-
\n “7. Easement restrictive of certain rights. – Easemen<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\nIt is also submitted by the applicant that in terms of the arrangement between the parties, M\/s. Essar is required to provide land and all other inputs for the processing of gases by INOXAP. Since the owner of the land would own the ambient air above its land, in effect, M\/s. Essar has provided the same to INOXAP in terms of the arrangement (along with electricity, industrial water etc.)
\n13.4 In view of the aforesaid statutory position and commercial arrangement, it is clear that the Atmospheric Air used by the applicant belongs to M\/s. Essar. Thus, all the inputs viz. Atmospheric Air, Industrial Water and Electricity belongs to M\/s. Essar.
\n14.1 As all the necessary ingredients of the definition of 'job work' are fulfilled in this case, the activity of manufacturing of industrial gases viz. Oxygen, Nitrogen and Argon by the applicant amounts to 'Job Work'<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n Explanation. – For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him.”
\nThus, it is evident that under the Central Excise regime also, the applicant was discharging duty under Rule 10A of the Central Excise Valuation Rules, 2000, which Rule was applicable where the excisable goods were produced or manufactured by a job-worker, on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorized by him.
\n14.4 Therefore, taking all these aspects into consideration, we hold that the activity of manufacturing industrial gases viz. Oxygen, Nitrogen and Argon undertaken by the applicant amounts to 'Job Work' as defined under Section 2(68) of the said Acts.
\n15.1 The provisions relating to determi<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n
\n (v) one of them directly or indirectly controls the other;
\n (vi) both of them are directly or indirectly controlled by a third person;
\n (vii) together they directly or indirectly control a third person; or;
\n (viii) they are members of the same family;
\n (b) the term “person” also includes legal persons;
\n (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.”
\n15.2 The applicant and M\/s. Essar are not related persons as defined under Explanation (a) and (c) of Section 15 of the said Acts.
\n15.3 Further, the computation of Job Work Charges has been described at clause 6 of the agreement entered into between the applicant and M\/s. Essar. The Job Work charge agreed by the applicant a<\/p>\n
For full text:-Visit the Source <\/a><\/p>\n